38

I recently refinanced my home. At the time based on the appraisal vs. amortization I found I would be stuck with PMI (private mortgage insurance) for about 9 months.

I've paid extra on the mortgage each month and after 7 months I got my LTV (loan-to-value ratio) to be 79%. Yay! So I called Pacific Union and asked for PMI to be removed.

The woman said I'd need to fax in a written request. Then she added that my written request would likely be denied because my account had not been in good standing the last 12 months. I pointed out that I'd only had the loan for 7 months and had never been late, but that didn't seem to matter to her.

So I faxed in my written request. Then I read through all my documentation on my loan. Nowhere did it say that I needed to have the loan for 12 months.

After a week I called them back and they said it would be another week for a decision.

So, I waited another week and called. They now just had a recording saying they were too busy to take a call and I could leave a callback number. I did this and never heard back. I've now tried twice more to call them. Each time I leave a number and each time I don't hear back. So I've fired off a written request again.

At this point we've gone around the horn to the next month and in two short days I'll be paying PMI on March's payment.

Do they have any grounds to not remove PMI? Isn't it federally mandated that PMI must be removed at 80%? Any recourse anyone can think of?

[EDIT] - I heard back from Pacific Union. They state that I did not sign anything agreeing to these terms which is what I was certain of. They state these terms are simply automatic with Fannie Mai backed loans and it doesn't matter if I was informed or not about these terms. They also chose not to hide behind the "no late payments" clause and instead said they were requiring an appraisal to remove PMI. Of course an appraisal is $400 and I'll hit 78% LTV before I would pay that much extra in PMI. I have now contacted a lawyer. I'll update again with whatever opinion the lawyer has and whether I proceed or not.

[EDIT] - I filed a BBB complaint. They waited 30+ days to respond. In their response they indicate that the first woman (and some SE users below) are wrong. The loan does NOT have to be in good standing for 12 months. The loan simply needs no late payments within 12 months. They then hide behind the request for another appraisal as the sole reason to not remove it. I checked with Fannie Mae who backs the loan and was told this is optional per the lender, however the lender can force it and I have no recourse. Additionally, they could have asked for a Broker's Price Option (BPO) or a certificate of value which would cost me hundreds less.

At this point I cannot continue to fight them because the amount of PMI I'll pay until 78% LTV is equal to or less than the appraisal cost of $400.

[EDIT] As of August 2015 I've hit 78% LTV. I called Pacific Union to ensure that the automatic cancellation of PMI had happened. They said no, I'd need to request that in writing. This is a violation of federal law as it's supposed to be automatic. They also said they would still deny it because now they want 24 months of good history. I've sent a threatening letter off and am waiting for a reply. If any lawyers come along and read this I'd sure like to hire you.

[EDIT] After my letter they said they would remove PMI. They did not and I was charged again in September. I called them yet again and complained. They said PMI was going to be removed. They then charged my again in October! I called again. I called again and went berserk on the phone. PMI was finally removed for November 2015. First month without it.

Paul
  • 1,296
  • 3
  • 10
  • 14
  • 1
    Here is a decent article on this while you are waiting for a more thorough answer: http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-mortgage-pmi-insurance-from-my-loan.html – JohnFx Feb 26 '15 at 17:52
  • 7
    Are your written requests being sent certified mail (or equivalent in your country)? Also, be careful with must versus may be removed. – MrChrister Feb 26 '15 at 18:30
  • I have faxed in the written requests. The one time I got through they did acknowledge receiving it and said they hadn't made a decision yet. – Paul Feb 26 '15 at 19:27
  • 3
    My lender dragged its feet as well. I just sent email after email asking where they were in the process, whether they had done the things they said they would do and not told me or just hadn't done them at all, etc. I was clearly leaving a trail of documents for a court case. (They also under-appraised my home so I had to pay a bit extra to hit 80%). In my case they did give in, but I had to implicitly threaten legal action, show I was documenting all their BS, and just really work for it. My guess is that this usually works, but perhaps people actually need an attorney. – psr Feb 27 '15 at 00:26
  • 2
    I am curious, what was the LTV at closing? It's very unusual to have such a short planned PMI, it's as if you were short by a few $1000 or less. Did anyone council you to try to come up with this small difference, warning of the disproportionately high PMI cost for this tiny shortage? – JTP - Apologise to Monica Feb 27 '15 at 12:31
  • 1
    When I got the loan, the loan was $6383.79 too high to avoid PMI. There was no way to come up with that much. I hit that in 7 months because I have a 15 year loan at today's low rates. I also paid extra each month explicitly for the reason of dropping PMI early. – Paul Feb 27 '15 at 13:57
  • Is this by chance an FHA loan? As of June, 2013, PMI is required on the loan for the entire term IF it is an FHA loan. – Tyler Feb 27 '15 at 17:11
  • No, it is not FHA. Being a refinance I don't believe that's even possible. Isn't that just for first time buyers? – Paul Feb 27 '15 at 17:19
  • 1
    What part of the phrase ".... your lender still must terminate PMI on the date when your principal balance is scheduled to reach 78 percent ..." in "Automatic PMI termination Even if you don’t ask your lender to cancel PMI, your lender still must terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home." do you not understand. If your loan balance hits 78% before the date when it was scheduled to hit 78%, the lender is not required to automatically remove PMI. You are, of course, free to make the request – Dilip Sarwate Aug 07 '15 at 19:12
  • @DilipSarwate You do not understand. The word scheduled means the scheduled amortization. It does not mean a date. if your LTV is scheduled to hit 78% when you owe $100,000 then that's the number to hit. It does not matter what day you do this on. What it really means is that the lender cannot say you need a new appraisal or that your value has changed and pick a new number. If your loan is scheduled to be at 78% when you owe $x, then as soon as you owe $x it can be removed. – Paul Aug 07 '15 at 19:19
  • @DilipSarwate Incidentally, I have hit the date as well. I didn't realize that until now but I checked the original schedule and this month's payment was the original 78% scheduled date. I'm overpaid by $600 or so because I pay extra. But the dates are one and the same. So assuming you are right, my mortgage company is still wrong. – Paul Aug 07 '15 at 19:29
  • 1
    "You do not understand." Oh well, never argue with a fool; people listening might not be able to tell the difference. I wish you all the best in your future dealings with your lender and your lawyer. – Dilip Sarwate Aug 08 '15 at 12:48
  • @DilipSarwate Can you not read? I hit the date of the scheduled amortization of 78%. I also hit the value of 78%. So whichever one it is, I did it. – Paul Aug 10 '15 at 12:06
  • When refinancing, is the 78% LTV to have PMI auto dropped based on the purchase price/appraised value or on the appraised value from the refinance? –  Oct 07 '15 at 01:55
  • 1
    The auto-drop is based on original price/loan, and original amortization. – JTP - Apologise to Monica Oct 07 '15 at 02:34
  • Lots of good info on the regulations around this however another angle on this is how to get them to make a decision faster. Go to social media, mention them dragging their feet and costing their customers money on their FB and Twitter. You may be suprised how quickly decisions can be expidited when you put their reputation on the line. – Myles Feb 27 '15 at 18:37
  • Can you please give us an update about what happened? We might be in a similar situation - We are close to 80% (within less than a year, since we prepaid like crazy assuming the PMI will go away), and can pay the rest with our "emergency money". The scheduled dates of 80% and 78% are years away. I would really hate getting an appraisal done since $500 seems like a fortune :) –  Jan 29 '16 at 20:18
  • @svictor9 I updated it. The 80% PMI removal is based on the original amortization not what you have paid. Paying extra does not help. So you need an appraisal for that. The 78% rule is the same. I hit 78% for both those categories at the same time so for me it made no difference. I ended up paying 8 extra months of PMI. Three of those months were illegal as I was below 78%. The others were just shady. – Paul Jan 29 '16 at 20:36
  • Just out of curiosity--this took a long time. Why didn't you just apply for another loan through a different lender? Unless the interest rate was going up (I doubt you got a great interest rate with a sub 20% loan anyway) I'd have thought you could have gotten a better interest rate, no PMI AND a free appraisal by going to another lender. – Bill K Dec 05 '19 at 18:01
  • @BillK Because a new loan would require a new appraisal fee, new loan origination fees, etc. – Paul Dec 05 '19 at 22:51
  • @Paul Just out of curiosity--did you ask? I admit that the last time I dealt with loans was just before the financial collapse, but at the time they were willing to cover all the fees for a very slightly higher interest rate. At the time I refinanced 3 or 4 times over a few years, each time for free and at a lower interest rate. The key seemed to be finding a good financer who could set up the loan and NOT going straight to any institution. – Bill K Dec 06 '19 at 17:15
  • @BillK I didn't ask because the appraisal fee alone was going to be more than the PMI I would be paying. No bank at that time or since would give a loan without any fees, especially that one. – Paul Dec 06 '19 at 21:20

5 Answers5

22

Here's some good information:

http://www.nolo.com/legal-encyclopedia/private-mortgage-insurance-pmi-30108.html

The Act says that you can ask that your PMI be canceled when you've paid down your mortgage to 80% of the loan, if you have a good record of payment and compliance with the terms of your mortgage, you make a written request, and you show that the value of the property hasn't gone down, nor have you encumbered it with liens (such as a second mortgage). If you meet all these conditions, the lender must grant your request to cancel the PMI.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

A borrower has a good payment history if the borrower: (1) has not made a payment that was 60 days or more past due within the first 12 months of the last 2 years prior to the later of the cancellation date, or the date that the borrower requests cancellation; or (2) has not made a payment that was 30 days or more past due within the 12 months prior to the later of the cancellation date or the date that the borrower requests cancellation.

(my reading of that is that since you've had no late payments, you have a good payment history)

If they still refuse, you need a lawyer and you need one ASAP - don't put it off at all. A good residential property lawyer will know the law, will know how to remedy it, and will know how to make sure none of your money is wasted.

David Rice
  • 2,063
  • 10
  • 9
  • 2
    Thank you. I really have no option for a lawyer since PMI over the next 5-6 months will be cheaper than the lawyer. Unless maybe I can sue for the lawyer costs too. I will investigate. – Paul Feb 26 '15 at 18:08
  • 17
    If you sue, your lawyer should also sue for legal fees. Usually a sternly written letter for an hour or two of lawyer time would be all that is required. – MrChrister Feb 26 '15 at 18:31
  • 1
    +1 and marking as the answer. In the future I'll post a comment with the outcome in case anyone else ever runs into this. – Paul Feb 26 '15 at 19:44
  • 6
    I think a huge point was missed here... If you sue, you'll lose. You do not have the 12 months prescribed in the Fed guidelines. Your lender will successfully argue that you do not have a sufficient payment history with them. When you refinance it's another mortgage and the clock gets reset since the payment, collateral value, etc. are different. – Mr. Mascaro Feb 26 '15 at 21:23
  • 12
    @jbarker2160 It doesn't say I need "12 months of non late payments". It says I need "to have made no late payments within the past 12 months". Which I have not. The difference in phrasing is my source of contention. It may sound like splitting hairs, but it isn't. Those are two completely separate requirements. – Paul Feb 26 '15 at 21:30
  • 3
    Ok. You can trust your uninformed opinion, but your bank wouldn't refuse this sort of thing out of hand unless they had a reason. Banks are especially good at holding on to their money. – Mr. Mascaro Feb 26 '15 at 21:56
  • 13
    @jbarker2160: Banks don't need a reason, they just need a halfway believable story. In this case, I'd call a lawyer for a price quote and forward that to the bank - "this is what I'll claim in legal costs". The quote is free, but it makes it clear that you're absolutely serious. If this fails, you can still get the lawyer to write another letter. – MSalters Feb 26 '15 at 23:06
  • Maybe the bank is just betting that it can stall long enough to ensure that "the borrower satisfies any requirement of the mortgage holder for: (i) evidence of a type established in advance that the val ue of the property has not declined below the original value; and (ii) certification that the borrower’s equity in the property is not subject to a subordinate lien (12 USC 4902(a)(4))" doesn't happen until another month's money is in. – Steve Jessop Feb 27 '15 at 13:36
  • @MSalters, as someone who actually has knowledge of the laws involved, your advice is not very good. A refinance is known as a significant event. This resets the clock on all payment history. The bank has no way of knowing why the borrower decided to refinance. People sometimes refinance when they have financial difficulties and so the REGULATION give the bank 12 months of experience on the new loan. It also may have very well been in the contracts the borrower signed that they would have to pay the PMI for 12 months regardless(this is common.) – Mr. Mascaro Feb 27 '15 at 14:08
  • @jbarker2160 I'm not trying to argue with you. You clearly expressed your opinion. But banks just need a good financial reason, not a legal reason to enforce the policy the way they are here. Banks do illegal activity all the time. They get hit with class action lawsuits often for interpreting the laws in a method that provides them with more money. I believe their stance here to be illegal. Yes, there's the possibility I'm wrong. I'll be contacting a lawyer Monday and will post an update. – Paul Feb 27 '15 at 14:37
  • 3
    @jbarker2160: You may want to back your opinion with some facts. The bank must have a reason in law to refuse that loan. There is no "first 12 months" exception in the HPA. The only thing close to that mythical 12 months is "good payment history", which is defined by the absence of specific events that are exhaustively listed in 12 U.S. Code § 4901.4 – MSalters Feb 27 '15 at 19:42
14

Here is what the Consumer Financial Protection Bureau has to say about the matter (I have added emphasis to a few key words here and there). The link is taken from the first comment on the question which was written by Moderator JohnFx,

Request PMI cancellation
The Homeowners Protection Act gives you the right to request that your lender cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can't find the disclosure form, contact your lender.

You can also make this request earlier if you have made additional payments to reduce the principal balance of your mortgage to 80 percent of the original value of your home.

There are other important criteria you must meet if you want to cancel PMI on your loan:

  • Your request must be in writing.
  • You must have a good payment history and be current on your payments.
  • Your lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
  • Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property hasn’t declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel PMI.

If you meet these requirements your servicer generally must cancel your PMI when you request it.

Automatic PMI termination
Even if you don’t ask your lender to cancel PMI, your lender still must terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. You also need to be current on your payments on the anticipated cancellation date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date.

It’s worth noting a termination request is different than a cancellation request. Your lender must terminate PMI even if the principal balance of your loan has not actually reached 78 percent of the original value of your home – for example, because the value of your home declined.

Original answer

You can request removal of the PMI as soon as your LTV ratio reaches 80% as per the amortization schedule and the lender must grant the request provided your account being in good standing, i.e. you have not missed payments or made late payments and your LTV actually is at 80% as per the amortization schedule (which uses the original appraised value of the house). You can request removal of the PMI if your LTV ratio reaches 80% earlier than the scheduled date because you have made extra payments etc. but the lender is not required to grant this request without further ado; the lender is allowed to ask you to pay for an appraisal to make sure that the house has not declined in value in the mean time and so you actually are at 80% LTV, and can decline the request if you refuse to pay for the appraisal or if the appraisal shows that the value of the has decreased and so you are not actually at 80% LTV as per the new appraised value. When your LTV ratio reaches 78% (value as per the original appraisal) the lender is required to remove PMI even if you have not requested this already. Some lenders might be more forgetful than others about this matter.

Dilip Sarwate
  • 31,562
  • 4
  • 55
  • 122
  • This is absolutely untrue. PMI is provided by an insurance company and in many mortgage contracts there is a minimum period that PMI must be paid for the insurance company to earn a profit. Otherwise there is a larger upfront cost for the insurance. I didn't even have to pay PMI and this language was in my loan documents. – Mr. Mascaro Feb 27 '15 at 14:17
  • 1
    @DilipSarwate, I didn't downvote and you still haven't settled the question. Your "evidence" still says that a good payment history is required without defining what that means. You have literally clarified nothing. – Mr. Mascaro Feb 27 '15 at 14:32
  • 4
    @jbarker2160 - When the natural amortization hits 78% LTV, "Automatic PMI termination" kicks in. That's important. And it answers the question. This was discussed on a different thread here and that was the punchline. (The prepaid quicker threshold is a bit different) – JTP - Apologise to Monica Feb 27 '15 at 14:34
  • @JoeTaxpayer, that's not the end of it and that's why all of those conditions are listed. All of the conditions of the act must be satisfied before autoterm kicks in. I recently wrote the mortgage software for a very large, regional bank and the 12+ months of on-time payments from the start date of the new loan was hard-coded into their system. I'd say that if it wasn't a safe bet they would not have had this business rule in place. – Mr. Mascaro Feb 27 '15 at 14:42
  • 4
    @jbarker2160 - Automatic PMI termination requires no other conditions, just the natural amortization hitting 78% LTV. – JTP - Apologise to Monica Feb 27 '15 at 16:16
  • 1
    As of yesterday both Fannie Mae and the lender confirmed what I was saying. "No late payments within 12 months" is not the same as "good history for 12 months". You DO have the right to have PMI removed within 12 months. Period. – Paul Apr 08 '15 at 14:07
5

Paul, I've got to agree with JBarker; the fact that 12 months was mentioned in the rule does give the lender an out. They would argue that good payment history is legally defined as being over a minimum 12 month period. After all who's to say that you won't default in the 8th through 12th months? I'd say ride the storm until that first year is past and then send them a written request via certified mail (don't even trust faxes.) If they don't remove the PMI it's time to see a lawyer. Most initial consultations are free and it may be that all he'll have to do is send a scare letter. Lastly, if none of that works and the prevailing interest rates aren't too high maybe you should refi with another lender. They sound like douche bags anyway for dodging your calls. Good luck.

Nowun
  • 137
  • 3
  • 1
    Fair enough. And if that's how it goes, then that's how it goes. I actually don't remember signing anything related to a 12 month rule and I'd like them to provide what I signed back to me. I also dispute that interpretation, but I may be stuck with it. – Paul Feb 26 '15 at 22:01
  • 2
    It's your responsibility to take and keep file copies of anything you sign. Though you can probably get copies later, you may have to pay them for the resources used to retrieve them. ALWAYS know exactly what you are signing before you sign it, keep a file copy, and get explanations of anything that is at all unclear... and if in doubt over anything more than a trivial agreement consider hiring a lawyer to read thru it and tell you which items you should attempt to have crossed out. Gods know they had THEIR legal team review it before you ever saw it... – keshlam Feb 26 '15 at 23:48
  • 1
    "the fact that 12 months was mentioned in the rule does give the lender an out." No it doesn't. The "rule" is nonexistent. – smci Feb 27 '15 at 11:12
  • @smci It very well may give the lender an out. There may be other rules or legal precedent which give the lender some leeway in how to interpret payment history -- i.e. the lender may be allowed to interpret "payment history" as payments to them specifically. As for the rule being nonexistent -- the linked Federal Reserve document describes a U.S. law -- if you're going to say that doesn't apply I'd suggest you supply a citation of some sort. – David Feb 27 '15 at 13:19
  • 3
    @David there is no such rule of "minimum 12 months' payment history", citing the Federal Reserve document. There simply is no "minimum payment history". Read it again. Also "A.) BORROWER REQUESTED CANCELLATION borrower may initiate cancellation... by submitting written request. The servicer must take action to cancel PMI when the cancellation date occurs..." Not "if they feel like it", or "unless they made up extra rules". – smci Feb 27 '15 at 13:31
  • Yes, and under that very section one of the conditions / bullet points (on the following page) is that "the borrower has a good payment history", defined by a footnote as not being more than 30/60 days late within the last 12 months. The language is somewhat vague: I initially read it as "no late payments on this particular mortgage" but realized it may mean "no late payments on any bill". – David Feb 27 '15 at 16:55
  • ... it hinges on the precise meaning of "good payment history" in this situation -- and whether the lender has any weasel room in how to interpret that. I'm not saying there are other rules or precedent that apply, only that there may be ... IANAL so I wouldn't want to advise the OP as if I were certain my (perhaps naive) reading was correct. – David Feb 27 '15 at 16:59
0

In similar situation, on advice of my more experienced colleague, instead of PMI I arranged for 2nd mortgage (from the same bank). Yes, it has 1% higher rate, but it was trivial to close it when paid off.

Peter M. - stands for Monica
  • 385
  • 2
  • 7
0

My experience is that without proper legal documentation, (an appraisal) showing that you are below 80% LTV you will be stuck with the PMI.

In my state, State Taxes are based on the County Tax Assessors Valuation, which is usually about 80% of market value, and doesn't take into account market conditions. Lenders love to pull out the tax value (public record) and claim: "Based on the County Assessor; (Whom they take to be a professional in the field) your property value is worth ($X) and your loan ($X) so your LTV is ($X) This approach is a generally accepted practice in the field and the lender will win that legal battle in court every time. I am convinced that they are all in cahoots but that is a different post

There are two ways around this: 1- get an appraisal, which they will accept at face value. It will cost you $400 up front, so there is some risk if you get an appraiser who favors a lower value. Your lender may also require that they get to choose the Appraiser, (mine did) which seems like a crock- -and it probably is but I lucked out and my PMI was dropped. Check with your lender to see what they require before you run out to get an appraisal on your own.

Route 2 is equally risky, but has less up front cost. You can petition the Tax Assessor to raise your taxable value up to reflect real market value. Since the Lender accepts his assessment as a professional, the lender will drop your PMI if the value is raised to reflect greater than 20% Equity. The Assessor may or may not be receptive to raising your tax value, and even assuming he does there are some things to be aware of. If your Tax value goes up, your taxes also will go up and will stay up over time, so if you are in a state with high property taxes you will pay the $400 you saved, and more, in very short order. Your neighbors may not look on your higher value favorably as the assessor may see fit to raise taxes in the neighborhood, being that you have alerted him to the fact that your property was undervalued.

You can also choose to pursue the matter legally, but unless you get involved in a class action, or get a lawyer who is willing to work pro-bono, you will spend $400 before you find out if you even have a case.

Good Luck

MR.KJ
  • 77
  • 1
  • You are correct on the requested removal of PMI - at 80% LTV. But no appraisal is needed at 78%. At that point it's forced into being removed. So you are right on my original post, but now I'm at 78% and they still are not removing it. – Paul Aug 07 '15 at 20:39
  • Paul, The burden of proof is on you, so even if you have paid 50% of the original loan, if the LTV is not below 80% the lender is still with-in their right to require PMI. Since 78% is well within the margin of error for property valuations the lenders argument will be that until you prove that you have greater than 20% equity- -you don't. – MR.KJ Aug 07 '15 at 21:38
  • There are too many incorrect statements in this answer including a complete misunderstanding of what LTV means. – Dilip Sarwate Aug 08 '15 at 12:52
  • @user31026 You are beyond mistaken. At 80% the burden of proof is on me. At 78% there is no more burden of proof. Please read the actual laws on this before commenting. – Paul Aug 10 '15 at 12:04
  • Paul, perhaps I misunderstand the situation. Are you saying that you have paid the loan amount down to 78% of the original value of the loan, or that because of market conditions you have greater than 20% equity? If it is the first then you are correct there is no reason for the lender to deny removal of the PMI. If it is the second, the burden of proof remains with you. – MR.KJ Aug 14 '15 at 21:52